Zavvi files for bankruptcy protection

LONDON 
Britain's economic downturn claimed another prominent retailer Wednesday as music, games and DVD retail chain Zavvi filed for a form of bankruptcy protection, blaming the collapse of the Woolworth Group's distribution arm.

Ernst & Young administrators, appointed to run the company, said that they would continue to trade "with a view to selling all or part of its business as a going concern."

Zavvi, created by a management buyout of the Virgin Megastores just over a year ago, is Britain's largest independent entertainment retailer. It has 125 stores across Britain and Ireland, employing around 2,400 permanent staff and 1,050 temporary staff.

The company's operations in Ireland are currently not subject to the insolvency proceedings.

Ernst & Young said that the the collapse of Entertainment UK Ltd. (EUK), Woolworths' wholesale supplier of music, DVDs and games – and Zavvi's main supplier – last month had severely impacted on Zavvi, leaving it unable to take customer orders.

Since then, Zavvi has been unable to source stock in the usual way and had been forced to enter into new trading arrangements that made it difficult to obtain stock on favorable credit terms, Ernst & Young said.

Woolworths earlier this month said it was cutting 700 jobs at EUK, leaving a reduced work force of 375 as it winds down the unit after failing to find a buyer.

"Since EUK went into administration, and perhaps before, the impact of problems at EUK on the Zavvi Group has been significant," said Tom Jack, joint administrator. "In the absence of a buyer for EUK, and with dire trading conditions on the high street, the Zavvi Group has seen a material fall in sales."

Zavvi is the third retailer in 24 hours to call in administrators as a slump in consumer spending claims a growing number of casualties, joining tea merchant Whittard and menswear group The Officers Club.

The administration process is a form of bankruptcy protection. Administrators are appointed to salvage as much of the company as possible for the benefit of its creditors, a process which can involve trying to keep the business as a going concern or breaking it up and selling it off.

Ernst & Young said all Zavvi stores will open as normal on Boxing Day for the post-Christmas sales.

Simon Douglas and Steve Peckham, the group's founders, thanked employees for their support since the buyout from the Virgin Group last year.

"We have done all that is possible to keep the business trading, but the problems encountered with EUK, and particularly its recent failure, has been too much for the business to cope with," they said in a statement.